Slippery synthetic identities prove tough to nab, but there are telltale signs

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May 4, 2017

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Over the last 5 years, the dramatic rise of synthetic identities has been a boon for fraudsters, and a new headache for companies and financial institutions. However, the behavior patterns of artificial ID holders offer a way to fight back and reduce fraud.

Synthetic identity fraud is unique because there is no consumer victim when a crime takes place. That’s significant, because consumers are often the first to catch on to fraud when their own identity is stolen, said Jeffrey Feinstein, vice president of analytic strategy at LexusNexis Risk Solutions.

Without an affected consumer to call their bank or credit card company about a stolen identity, lenders may have a harder time figuring out which of their customers is a fake person.

“The only way that the lender would find out that it’s a synthetic identity is that the consumer just stop paying their bills,” Feinstein explained on the latest episode of One World Identity’sState of Identity podcast.

Because a synthetic identity looks like a real identity, banks often do not even realize they’re dealing with a fraudster. That allows con artists to rack up accounts — such as one extreme example, where a synthetic identity ring generated more than 7,000 bogus IDs.

The criminals behind the effort used between 18 and 22 people to create about 200 bank accounts, and 1,800 mailing addresses for thousands of fake people, explained Kim Sutherland, senior director of fraud and identity management strategy with LexisNexis Risk Solutions.

“During those years, when they were nurturing those identities,” she said.

In other words, as far as the banks were concerned, everything looked great — until they stopped paying bills.

In another extreme example, Feinstein told of two derelict houses in the Detroit area that transact heavily, despite the fact that they are boarded up.

In the case of those Michigan homes, there were multiple credit inquiries stemming from people claiming to live at those addresses. There were even dead people whose identities were taken, and then “moved” across the country to transact there.

Though synthetic identities are not always so easy to catch, there are key differences that LexisNexis Risk Solutions and others keep watch for to cut down on fraud.

For one, synthetic identities almost never have any associated family — fraudsters don’t create fake parents, fake siblings and fake spouses to go along with their fake identities. Institutions can look to see if someone seeking a line of credit has identifiable family — if they do, odds are they are real.

In addition, synthetic identities tend to be “emerging identities,” or people who are new to the credit scene. Typical consumers tend to start slow when establishing credit, seeking a student loan or obtaining a credit card.

Synthetic identities are generally created to commit fraud, so they want to build their identity more quickly. In the words of Feinstein, fraudulent ID makers are “patient, but not infinitely patient,” spending a year to 18 months opening lines of credit before cashing out.

Finally, a real consumer usually has what are known as “proof of life” pieces of evidence — basic things like a driver’s license or a voter ID.

Synthetic identities, however, usually lack those basic credentials. They frequently can only be tracked inside the credit bureau — and their “real world” presence is often a shared address, giving investigators a potential smoking gun for fraud — especially if that house is near Detroit and boarded up.